UpdateHonam ventures into Malaysia through Titan acquisition

SINGAPORE (ICIS news)--Honam Petrochemical of South Korea announced on Friday its acquisition of a sizeable stake in major polyethylene producer Titan Chemicals, with the intention of taking full control of the listed Malaysian company.

Honam - a unit of conglomerate Lotte Group - signed an agreement with the Chao Group of ?xml:namespace>Taiwan and the Permodalan Nasional Bhd of Malaysia to purchase more than 70% of Titan, marking its first venture into Malaysia, Honam spokesperson SH Kim said.

Honam hopes to acquire Titan’s remaining shares by end November, with investments totalling about $1.5bn (€1.2bn), he said. The company would delist Titan from BursaMalaysia, the source added.

Titan, in a separate announcement to the Malaysian stock exchange, said another investor - Union Harvard Investments was also a party to the M$2.94bn ($916m) share sale deal, involving 1.25bn shares at M$2.35 each.

The shares represented 72.3% of Titan, it said, putting Honam's valuation of the company at roughly M$4.1bn ($1.3bn).

Titan's acquisition would allow Honam, whose current operations are focused on the Chinese market, to penetrate the southeast Asian market, said Kim.

Honam has not been able to export much volume to southeast Asia, where non-ASEAN products are subject to high import duties, market sources said.

Titan would make a perfect fit for Honam given the Malaysian company's strong standing in the region's polyolefins market, they added.

Honam's Kim, meanwhile, cited that Titan also enjoys an advantage in the cost of feedstocks in its operations in Malaysia and Indonesia, among the benefits to be derived from the acquisition.

The acquisition was still pending regulatory approvals.

In terms of valuation, an industry analyst said that Honam could have gotten a better price for the deal if it had waited later this year to make the move, citing a possible "severe petrochemicals downcycle".

“I am neutral on this [acquisition] deal because Titan, like Honam, has to buy in its naphtha feedstock so the integration is not good," the industry analyst said.

Titan reported on Friday that its net profit in the second quarter 62% year on year to Malaysian ringgit (M$) 68.5m ($21.3m) due to poor margins even when sales jumped 23% to M$1.69bn.

“Lotte is very aggressive and wants to raise turnover to Korean won (W) 40,000bn ($33bn) by 2018. Turnover, if you include Titan, will only be W12,000bn this year and they have a lot further to go in their acquisitions strategy,” the industry analyst said.